Uranium cheer squad gets louder

Bears, however, are not giving up easily, pointing to earlier price collapses which have followed catastrophic nuclear power accidents which turn public opinion against uranium, sending it back into the sin bin for a decade.A repeat of the boom/bust scenario which followed the 1979 Three Mile Island incident in the US, the 1986 Chernobyl melt-down in Ukraine and the 2011 Fukushima crisis, cannot be ruled out, especially given the uncertainty surrounding the war in Ukraine which is alarmingly close to the Zaporizhzhia nuclear power plant.Fear of the effects of climate change could counter-balance fear of another nuclear accident, or deliberate destruction of a power plant which is said to be on the Russian agenda, with nuclear seen as a having an essential role in providing low-carbon electricity.Citi, an investment bank, this week added its weight to the pro-uranium side of the debate, forecasting an average price for 2023 of $60/lb, rising to $70/lb next year, a level last seen in January 2011, shortly before the Fukushima power plant was inundated by a 15-metre-high tsunami in March of that year.The bank's enthusiasm is based on evidence of power utilities returning to the market to top up reserves after years on the sidelines, leaving most of the buying over the past two years to speculative funds building their stakes in the belief that uranium is overdue for a revival.London-listed Yellow Cake, which warehouses nuclear fuel, has been one of the best-performing commodity-linked stocks over the past 12-months, up 25% at £4.07.Smaller finance firms such as Australian-based stockbroker Shaw and Partners have joined the uranium cheer squad with hugely ambitious share price forecasts based on a view that "the uranium sector is entering the next phase of its recovery after the long and deep post-Fukushima downturn."In a report sent to clients earlier this week, Shaw said the "uranium price is set to surge higher", and likely to "exceed $80/lb over the next two years".Examples of Shaw's uranium optimism can be measured through its buy tips for stocks such as Australian-listed Lotus Resources which is planning to re-start the Kayelekera project in Malawi in which it has an 85% interest.According to Shaw, Lotus could rise by 147% from last sales at A19 cents to A47c, describing it as "the cheapest of the ASX listed uranium mine restart stories on track for a final investment decision in the second half of 2023."Other ASX-listed uranium stocks on Shaw's list include Paladin Energy, tipped to rise by 57.5% to A$1.15. Peninsula Energy, tipped to double from A17c to A34, and Bannerman Energy, tipped to rise 94% to A$3.20.Shaw said in its report titled "Nuclear Renaissance" that US and European power utilities have returned to the term contract market with the volume of uranium sold in term contracts surging higher over the past 12-months.Sales on a term contract basis last year were reported by Shaw to have totalled 120 million pounds with sales so far this year totalling 100 million pounds.Citi said strong buying by power utilities had emerged as they seek to fulfill uranium feedstock requirements."Although the uptick in prices in June lacked liquidity and robust trading volumes, we anticipate that this uptrend in the U3O8 (yellow cake) price can remain and potentially even intensify as speculative buying by financial players returns to the market," Citi said."Activity of financial funds this year has been relatively sluggish versus previous periods, while real (utility) procurement increased and set the scene for a busy summer ahead."Heavy reliance on Russian nuclear fuel is seen as a factor in the market especially if Europe and the US extend sanctions to Russian uranium."Other factors that contributed to our price revision are broader public and policy maker acceptance of nuclear energy in developed economies," Citi said."At the same time the U3O8 production ramp up is still lagging and may hit further challenges in the current high interest rate environment."Shaw said nuclear power was becoming a more important part of energy transition as governments face the reality that investment in renewables is not going to meet decarbonisation objectives due to limits on transmission, batteries and firming (back up) capacity.

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